Fear Rocks Markets On Both Sides Of The Atlantic

This is WEEKEND EDITION from NPR News. I'm Jacki Lyden, in for Scott Simon. European shares took a hammering on Friday, dropping to near two-year lows amid more worries about the financial crisis there. Fears that the European economies are heading back into recession and the national debt problems of countries like Greece, Italy and even France are dragging down the euro and creating turmoil in the markets on both sides of the Atlantic. We're going to look back at the turbulent week in Europe with NPR's Eric Westervelt, who's been watching all this from Berlin. Hi, Eric.

ERIC WESTERVELT: Hi, Jacki.

LYDEN: So, a difficult week for European markets, of course, lots of ups and downs. What are analysts there saying about the way the markets behaved?

WESTERVELT: Well, I think, you know, most are saying, look, the markets always want an element of certainty and clarity and right now certainly politicians in Europe aren't giving them that certainty. On top of that, debt uncertainty - there were more indications, Jacki, this week of a weakening in the Eurozone, with Germany, Europe's largest economy, reporting almost zero growth last quarter. So, the markets took that all in and largely reacted negatively.

LYDEN: So, you mentioned a lack of certainty. On Wednesday, Germany's chancellor, Angela Merkel, and French President Nicolas Sarkozy met in Paris. Afterwards, they announced proposals for deeper fiscal integration amongst countries that use the euro. What was the reaction to the Paris meeting?

WESTERVELT: Well, in many ways, I think it made things worse with the markets. You obviously can't solve this prolonged debt crisis with one mini-summit between these two leaders, as important as they are. But all they did really, Jacki, was propose ways to increase cooperation, encourage balanced budgets among countries that use the euro, and they floated the idea of a tax on financial transactions. All these ideas will take a long time to implement, and they're certain to face opposition in parliaments across Europe and from voters. And markets want solutions now. They want to know that the European Central Bank is taking more action. So, the meeting hardly amounted to a clear plan to rescue the Eurozone. Here's Daniel Gross, who's an economist and director of the Center for European Policy Studies.

DANIEL GROSS: All they can offer is more politics, whereas the crisis really can be solved only by putting in a very large amount of liquidity either by the ECB or by the European Rescue Fund. And Merkel, Sarkozy didn't say anything about how this should be organized.

LYDEN: And you know, of course, that summit was pretty ballyhooed. What can European leaders do now to try and get ahead of the problem?

WESTERVELT: They're in a bind. They're trying things but, you know, as Gross said, they're trying politics and more politics. He talked about a fresh infusion of money, more liquidity, but Eurozone leaders, again, especially in the more fiscally healthy countries, are right now fiercely opposed to increasing the size yet again of this rescue fund for indebted countries or having the ECB, the European Central Bank, take more action. So, if they don't go that route, analysts argue the only choice might be to create these euro bonds. That means countries in trouble could finance their deficits by issuing bonds that are financed with the help from everybody else in the Eurozone. But, again, leaders, such as Merkel and Sarkozy, have voiced opposition to that idea. Chancellor Merkel, again on Friday, said no to that very strongly, telling members of her own Christian Democratic Union party that collectivization, in her words, of the region's debt would only leave euro members worse off and make things worse in the long run.

LYDEN: So, it could be a way out of the crisis but they're controversial?

WESTERVELT: They are. I mean, analysts are warning, look, they look like an appealing silver bullet out of this debt crisis but in the end, they argue, they're not. That the 17 nations that use the euro would have to become much more integrated, Jacki, than they are right now, that Europe would have become a kind of super-state, and that's just not happening. You'd be kind of forcing a degree of fiscal integration that's not in place now. And voters and certainly most parliaments wouldn't accept that.

LYDEN: NPR's Eric Westervelt speaking with us from Berlin, Germany. Thank you very much.